Why Is Health Insurance for Small Businesses So Expensive?
A small business must pay a higher price per employee for health insurance than a large business must pay. The White House website states that the average small business paid an 18 percent higher premium cost per employee before the passage of health care reform legislation in 2009. A small business with fewer employees must pay even higher health care premium rates.
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Bargaining Power
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An insurer gains more profit when a business has a large number of employees who receive health care coverage. A large business has additional bargaining power when negotiating rates, since the business can sign up with a competing health insurance company. To avoid this weak bargaining position, a small business can partner with other small businesses and negotiate for group coverage. The state of Missouri allows small businesses to purchase a single health insurance policy which covers employees at all participating businesses.
Administrative Costs
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Each group insurance policy requires the insurance company to assign clerical staff to manage the policy. These costs are higher per employee when a plan includes a smaller number of employees. An insurance policy for a small business includes a higher proportion of administrative costs than a policy for a large business. A broker frequently charges higher fees on a small business health insurance policy, according to the federal Health Reform website.
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Individual Costs
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Since a small business has fewer employees than a large business, the individual cost of each employee has a larger effect on the overall price of the plan. If one employee suffers a major illness which costs the insurer a lot of money, the premium rate can increase sharply even if the other employees of the firm are healthy, according to the White House website.
Coverage Requirements
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Federal law requires health insurance companies to offer health insurance policies to all small businesses. This law applies even if some of the employees of a business are currently ill. The insurance company requires the client to provide information about the current health of each of its employees, and it can charge higher premiums to insure a small business client if an employee has a pre-existing condition, according to the state of Missouri website.
General Business Conditions
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Insurance expenses for all companies are also increasing rapidly. The federal Health Reform website states that premiums for all businesses increased by more than 100 percent between 2000 and 2009, and insurance premium prices are rising much faster than employee wages.
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